It says Mr Coulson will be arrested on suspicion that he knew about, or had direct involvement in, the hacking of mobile phones during his time as editor, between 2003 and 2007.

He has insisted he knew nothing about the practice.

Downing Street has announced the prime minister is to hold a press conference at 0930 BST.

The phone-hacking scandal and David Cameron's links with Mr Coulson are expected to dominate it.

Mr Miliband said all politicians bore some responsibility for the state of British journalism but he said: "Putting it right for the prime minister means starting by admitting the appalling error of judgement by employing Andy Coulson and coming clean about what conversations he had with him about phone hacking before he was appointed."

The Labour leader also called on the government to rethink its decision to agree to the BSkyB takeover.

'Toothless poodle'

He said: "We have said all along there should be a reference to the Competition Commission... the government has chosen instead to rely on assurances from News International executives."

Mr Miliband went on to call for the Press Complaints Commission to be abolished and replaced and he said the "watchdog had become a toothless poodle".

The Labour leader also called on the government to rethink its decision to agree to the BSkyB takeover.

The satellite firm is the subject of a planned takeover by Rupert Murdoch's News Corp, which currently owns a 39% stake.

Staff said they were stunned after News International chairman James Murdoch announced on Thursday that the NoW was to be closed down, after days of increasingly damaging allegations.

The paper's editor Colin Myler said it was "the saddest day of my professional career".

Mr Wooding, who joined the NoW 18 months ago, said the paper was "fantastic" and "decent, hard-working, distinguished journalists were all carrying the can for the sins of a previous regime".

He told BBC Breakfast: "There are 200 people there, I think there are three who were there during the hacking time.

"A lot of this happened 10-11 years ago, with a different editor and different staff. We weren't there, we were brought in to clean up this newspaper, with a new editor who is beyond reproach, but the mud was sticking on us."

Columnist Carole Malone added: "What's really tragic is that everyone in that room had nothing to do with what went on in the past."

But Labour MP Chris Bryant, who believes his phone was hacked, said the decision to close was "a really cynical move".

He told the BBC: "What the Murdochs have been doing in the last few weeks is chucking people over the side in a desperate attempt to keep the ship afloat.

"But it's really unfair that [it is] the staff at the newspaper who are losing their jobs rather than the people at the top.

"If Rebekah Brooks had a single shred of decency in her, if only because Milly Dowler's phone was hacked on her watch, she should resign."

BBC political editor Nick Robinson said that Rupert Murdoch had sacrificed the paper - or, at least, its title - instead of Ms Brooks.

"Team Murdoch must have realised that it would be referred to again and again over the next few months in connection with the alleged phone-hacking of a murdered girl, grieving parents and war widows," he said.

"The question now is whether this will make the government's dilemma about the takeover of BSkyB easier or harder."

Mark Pritchard, secretary of the influential Conservative backbench 1922 committee and vice-chairman of the parliamentary media group, wants the government to delay a decision on the BSkyB takeover.

In April, the NoW admitted intercepting the voicemail messages of prominent people to find stories.

It came after years of rumours that the practice was widespread and amid intense pressure from those who believed they had been victims.

Royal editor Clive Goodman and private investigator Glenn Mulcaire had been jailed for hacking in January 2007 after it was found they had targeted Prince William's aides.

Revelations

Detectives recovered files from Mulcaire's home which referred to a long list of public figures and celebrities.

The scandal widened this week when it emerged that a phone belonging to murdered schoolgirl Milly Dowler, who was killed in 2002, had also been hacked into, and some messages deleted.

The newspaper has been a mainstay of the British press since 1843

It is also emerged that bereaved military families and relatives of 7/7 London bombing victims may have had their phones hacked.

Further revelations showed that the NoW had passed to police e-mails which allegedly showed payments by it to the police were approved by the then editor Mr Coulson.

Leading brands pulled their newspaper advertising and shares in BSkyB fell on fears that the scandal could hinder parent company News Corp's bid for the broadcaster.

On Wednesday, the government promised an inquiry in the hacking allegations, but the nature of it is undecided.